Summary of this article
Tier 2 and Tier 3 cities now contribute 77 per cent of overall insured cars.
Telangana leads with 30 per cent growth in car insurance cover.
EV insurance policies grew whopping 670 per centover the year, led by Maharashtra.
India’s mobility is undergoing noticeable change, shifting from metro cities' bustling streets to Tier 2 and Tier 3 cities. According to the recently released India Motor Insurance Trends Report FY26 by Policybazaar, this trend is reflected in the 8 per cent steady year-over-year growth in the car insurance market in India, with non-metro cities and the electric vehicle (EV) segment leading the change.
The report reveals the dominance of non-metro cities as the growth engine for motor insurance. It highlights that Tier 2 and Tier 3 cities are contributing around 77 per cent of the overall insurance car market. This reflects a significant 2 per cent increase from 75 per cent the previous year.
In metro cities, the growth in insured cars stands at a decent 8 per cent, but in non-metro regions, this is 15 per cent, showing higher growth than the metros.
According to the report, this is mainly due to increasing penetration of digital insurance platforms into smaller urban regions, rising financial awareness, and interest in sustainable transportation.
The report noted the highest growth in car insurance in Telangana, where the car insurance adoption rose a remarkable 30 per cent year-over-year. The growth in insurance reflects a growth in the demand for cars in the state and awareness of buyers towards financial protection through insurance.
EV Revolution
The most striking data point in the report is the 670 per cent growth in the EV insurance policies between 2025 and 2026, showing this segment as the fastest-growing in the motor insurance industry.
In the case of EV insurance adoption, Maharashtra ranks on top, contributing 8 per cent of all EV car insurance in the country. The major hubs contributing to this EV insurance growth are Mumbai and Pune. Although EVs' participation in the total insured vehicle mix is only 1 per cent, the segment is growing fast, indicating a shift in the Indian mobility ecosystem in the coming years.
Paras Pasricha, Head of Motor Insurance, Policybazaar, says: “India’s motor insurance market is entering a more mature and consumer-aware phase. As vehicle ownership expands deeper into Tier-2 and Tier-3 India, newer mobility formats are gaining traction. The strongest momentum is now emerging from non-metro India, EV-focused insurance needs, long-term comprehensive plans, and add-on-driven customisation.”
According to him, the buyers are now looking for more modular, digitally enabled, and affordable insurance protection.
Fuel-Mix
The report also indicates that despite the EV boom, the traditional fuels (petrol, diesel, CNG) continue to hold the lion’s share of the market. Petrol vehicles account for 68.3 per cent of all insured vehicles, followed by diesel at 24.7 per cent, and CNG vehicles at 5.8 per cent. Petrol vehicles are typically popular across hatchbacks, sedans, and compact SUVs, whereas diesel vehicles have a sustained demand for commercial usage, and alternative fuel CNG is preferred for being cost-effective amid rising fuel prices and its growing infrastructure availability.
As per the report, for metro citizens, the most common cause of damage to the vehicle in a minor collision is due to heavy traffic in peak hours. The other reasons include bumper and side-panel scratches, windshield damage, accidental damage while parking, and water-ingress-related engine damage.
Add-Ons
As a result, customers are increasingly buying add-ons to financially secure themselves. The most preferred add-ons include: road side accident (RSA) cover (89 per cent), zero depreciation (ZD) cover (87 per cent), consumables cover (42 per cent), key loss replacement (KLR) cover (39 per cent), engine protection cover (36 per cent), loss of personal belongings (LPB) cover (23 per cent), invoice price cover (20 per cent), tyre protector cover (9 per cent), NCB protector cover (1 per cent), and battery cover (1 per cent), notes the report.
